Why is The American Stock Market going to crash?

[amanda more]

Aunt Mable wouldn't be riding a rollercoaster with her lifesavings.

 

You may have no relatives like this. I would invite you to consider bringing it up in conversation. I've gotten "I don't have stocks." " Then so you haven't used a 401k or IRA?" "Well yes I have one but I don't think about it"

 

 

 

 

That's why we have the FDIC, which sort of makes the rest of your hypothetical scenario non-reality based.

"So, this basically brings us back to what was said on page 1 of this thread. Folks like you should probably avoid getting into the stock market at all if you're not comfortable with the risks or feel you don't have adequate information to make intelligent decisions."

 

 

Intelligent decisions one would think would include simple contingency theory. A little arithmetic is beyond the average investor? It is challenging for many to think of the common language mentioned above. The question here is what risk and how much and quantifying it. So, slightly tongue in cheek:

 

Reason : Those who resist simple contingency planning using simple arithmetic should be avoiding the risk of a dime due to their inability to have a clear-eyed view of risk. Since few do, it endangers the stock market with more highly intense emotion causing crashes.

 

P.S. Just heard Libyan liberation of Tripoli

Edited August 22, 2011 by amanda more

[swansont]

1)I am first just kind of observing. Hypothesizing.

2)Mathematically a 20% grab from an individual's stocks that will have a realized loss is a risk that I am advocating is acceptable. At a crash of 50% then the savings is much more precious than the perceived loss. What you paid and what the stock is currently worth are two different things.

You still haven't come up with convincing reasons why one should expect a 50% decline. But, even under the assumption that one might occur, why would it be any different than the 50% drop we saw in 2008/2009? i.e. a recovery of almost all of the drop over the course of several months? If I'm not in the market, I lose the opportunity for all that gain. I'm not buying stocks when they are the cheapest. My dividends are nonexistent, and don't get reinvested on the cheap.

 

What do I do with my newly-expanded cash position? Where can I get more than a percent or two return on it? I've seen the crash of '87 and the one after the new millennium/9-11 in addition to the housing bubble crash. The market recovered each time. My investing horizon is longer than the next year or two. If it wasn't, I shouldn't be in stocks.

[Realitycheck]

Most financial planners would typically only advise putting a certain percentage of money in stocks/funds in the first place. My personal family would typically lean to the conservative side, interest, etc.

[swansont]

Most financial planners would typically only advise putting a certain percentage of money in stocks/funds in the first place. My personal family would typically lean to the conservative side, interest, etc.

True, and the mix typically has a smaller stock component as retirement draws near, to avoid the volatility.

[amanda more]

You still haven't come up with convincing reasons why one should expect a 50% decline. But, even under the assumption that one might occur, why would it be any different than the 50% drop we saw in 2008/2009? i.e. a recovery of almost all of the drop over the course of several months? If I'm not in the market, I lose the opportunity for all that gain. I'm not buying stocks when they are the cheapest. My dividends are nonexistent, and don't get reinvested on the cheap.

 

What do I do with my newly-expanded cash position? Where can I get more than a percent or two return on it? I've seen the crash of '87 and the one after the new millennium/9-11 in addition to the housing bubble crash. The market recovered each time. My investing horizon is longer than the next year or two. If it wasn't, I shouldn't be in stocks.

 

A big problem with statistics is that one has to have sufficient time for the 6% to come about. Oddly enough a lot of retired people appear to have latched on to the market as a substitute for a job. Often, even an 85 year old has trouble seeing his days as numbered. So, despite that the age percent thing has been widely publicized there are lots of seniors with all their savings/retirement in the stock market. Many younger people have been able to use their retirement dollars in a last ditch effort to live on some cash once they are unemployed.

 

Will Rogers once said, "I'm not concerned with the return on my money, just the return of it."

Edited August 22, 2011 by amanda more

[amanda more]

I would think traders will be royally bummed. I wonder if Wall Street has had a force one hurricane ever. It depends if it just skirts the Carolinas which is what they are predicting.

 

Unlike Houston watch how no one leaves. Much more intense than a mere stock market. Now is the time for many to leave for an early weekend as long as it is somewhere on high ground. I guess they would close the market Monday if it hits.

 

Andrew because insurance was solvent paid money into the economy. Expensive areas I wonder if they have flood protection. The terms infuriate me. Landfall is for the eye- they should call it eyefall. Storm force winds can hit hours before for slow moving storm. Storm surge of ten feet sounds like it is ten feet further up on to the beach. Think the tsunami in height and coming in at a hundred miles an hour. Just call it tidal wave all along.

 

If people get accustomed to these things then they can work to save lives.

 

I suppose it will be federal flood insurance. Most of the world's population lives near an ocean.

 

One the plus side maybe it will flood those darn trading computers . . . . . .

[Realitycheck]

Hurricanes aren't that bad, unless:

1) A tornado happens to develop

2) You live in a low-lying area or against the shore

3) You live in a rickety, unfortified house.

 

Boarding up windows is kind of standard for big storms. While the risks are definitely there, they aren't that bad unless they're a monster. Been through a class 5, and it was kind of a novel experience, walking around in 100+ mph winds during a lull.

Edited August 26, 2011 by Realitycheck

[iNow]

Uhmm... Hurricanes? On topic, how exactly?

[Realitycheck]

I agree.

[amanda more]

Uhmm... Hurricanes? On topic, how exactly?

Normally, no, but if it goes over Wall Street . . .

[iNow]

Normally, no, but if it goes over Wall Street . . .

It wasn't a yes/no question.

[amanda more]

Have you noticed this thing that they revise the previous quarters and months and it is always down? If the wrong numbers were totally random one would think some revised up - some down.

 

The news media doesnt splash it that the first quarter GDP was revised down recently. I guess play it rosy until you cant.

 

So now the news media does find it necessary to publicize the bad jobs numbers. Was it so the debt fiasco wouldn't immediately crumble everything?

 

There was the rosy consumer price report but commentators admitted half was inflation. If that then gets revised will it be so distorted as a rosy report was actually zero growth and only inflation? Is stagflation totally here and has been?

 

In the paper last week they said the actual counties with food insecure children. I can't believe a third of the kids look at bare shelves some of the month.

 

The politicians make money while in office. We have corporate welfare- wall street, military-industrial welfare- Lockheed Martin etc. and now career politico welfare.

 

All we will here about is the mythical welfare queen driving a cadillac. A third of the children feel hunger at least part of a month.

 

Reason Parents are too discouraged looking at hungry kids to vote for the right people and so the system crashes around our heads taking the stock market with it. All the while rosy reports feed the media beast until it can't anymore.

[iNow]

There was the rosy consumer price report but commentators admitted half was inflation. If that then gets revised will it be so distorted as a rosy report was actually zero growth and only inflation? Is stagflation totally here and has been?

No. Inflation has been below 2% for 32 straight months.

[swansont]

Have you noticed this thing that they revise the previous quarters and months and it is always down?

 

March 25, 2011 "GDP growth was revised up from 2.8 percent at an annual rate to 3.1 percent"

http://www.esa.doc.gov/Blog/2011/03/25/gdp-revised-corporate-profits-bouncing-back

 

June 24, 2011 "U.S. 1Q GDP Growth Revised Up to 1.9%"

http://www.foxbusiness.com/markets/2011/06/24/us-1q-gdp-growth-edges-up-to-1/

[amanda more]

March 25, 2011 "GDP growth was revised up from 2.8 percent at an annual rate to 3.1 percent"

http://www.esa.doc.g...s-bouncing-back

 

June 24, 2011 "U.S. 1Q GDP Growth Revised Up to 1.9%"

http://www.foxbusine...-edges-up-to-1/

 

The first article show a revising up from a revising down so a net revising down. I guess if there is unscientific skewing I am ok with "erring on the side of caution" and not saying it is a smidgeon worse than it is. I do stand kind of corrected because I was following by hearing media instead of going to the source.

 

GDP from the source http://www.bea.gov/newsreleases/glance.htm

 

 

:

The graph doesnt look good to me. I hate it that they dont date their pages so dont know if this is current revision.

Reason: Stimulus had a huge effect enriching Washington DC drawing college graduates which has skewed the attitudes of people who run us causing them to talk of ridiculous stuff because reality of the country is so easy to ignore. That does not bode well for the future economy when the tiny minority by wealth and geography gives no consideration of the rest of us. It is like Detroit executives sitting in Michigan happy physically seeing SUV's and ignoring the land of Toyotas and Hondas like LA.

[jackson33]

amanda, I think your hearing about the weekly jobs report, which for some reason, have been lowered after the initial reports the following week, fairly consistently. GDP figures are commonly mixed up between, real quarterly GDP and Annually adjusted estimates, which for 2011 have been lowered several times, to my knowledge from every agency that makes such projections.

 

WASHINGTON — The Federal Reserve cut its economic growth forecast for the second time this year, reducing its estimate of 2011 gross domestic product growth to a range of 2.7% to 2.9%, down from 3.1% to 3.3% in April and 3.4% to 3.9% in January. It’s also cut its 2012 forecast from this lower base, to a level showing 3.3% to 3.7% growth from the 3.5% to 4.2% growth that the Fed forecast in April. The Fed is expecting core inflation between 1.5% to 1.8% this year, up from 1.3% to 1.6% previously, and for the price index for personal consumption expenditures to climb between 2.3% and 2.5%, vs. the April projection of 2.1% to 2.8%. It’s also more worried about unemployment, forecasting the 2011 jobless rate between 8.6% and 8.9% vs. April’s estimate of 8.4% to 8.7% unemployment rate.[/Quote]

 

http://www.ourbusinessnews.com/fed-cuts-growth-rate-forecast-for-2011-2012/

[amanda more]

Well, I guess a lot here are not very european centered.

 

I am so used to understanding econ 101 that the fed moves to prevent great depressions that I was puzzled by the Euro to begin with.

 

So it seemed inevitable that fed style monetary policy would have a hard time working with so many countries and the same currency. So was this too inevitable? They must have thought the block of Europe would lend a hand helping exports and economic prosperity in Europe and then selling to outside Europe.

 

Perhaps germany thought there was this huge advantage preventing the devalueing of neighboring currencies. At some point the poorer countries with say a lire get very cheap indeed compared to deutschmark? Anyone followed this?

 

Reason The stock market tanks as Europe tanks.

[iNow]

It's because they've decided to withdraw spending. They are retracting, and being austere. The market wants them to invest and grow. That's the opposite. This is pretty straight forward.

[amanda more]

It's because they've decided to withdraw spending. They are retracting, and being austere. The market wants them to invest and grow. That's the opposite. This is pretty straight forward.

 

I can quote it but with the downsizing of newspapers there is a downsizing of reporters who cover science and technology and then also the dismal science-economics.

 

So the inability for the "everybody else" to understand our difficult complicated technical society has decreased- at least in this mass media.

 

I have only now started watching Bill Maher. One reason so many of us don't vote and turn away is because it is just such a bummer. I like that there is a way to get interested and learn without getting very,very blue about it.

 

Along those lines I am reading this great book, "Zombie Economics" by John Quiggin. It gives me hope that it is possible to popularize the more factual take. He has a great cover and he is a lively writer. I enjoy the writing but then after 40 pages realize it is still for the more voracious nonfiction readers like me.

 

He discusses the different ways that Europe and other countries also bought in to these ideas. And continue to.

 

Reason: The economy is tanking (causing stock market crash) do to these zombie ideas that will not be killed despite all the crashes and data to the contrary. From "Zombie Economics," The Great Moderation, The Efficient Markets Hypothesis, Dynamic Stochastic General Equilibrium, Trickle Down Economics, Privatization. Economists themselves are to blame for letting these ideas generate a life of their own.

 

 

 

[amanda more]

 

This is a survey of bankers and accountants from august 2011 to this month september 2011. They had been optimistic back in January but are not now. That site I quoted on the GDP is a bit confusing. It says from quarter to quarter but a yearly basis. Then in another graph on something else it says quarter to quarter values. Since i don't think last year had like 12% GDP growth then this is very bad GDP. So, for .4% then 1.0% if then the next two quarters are 1% does this mean .1% plus .25% plus .25% plus .25% so a GDP of then a little over .85%? This is real GDP so they try to get a handle on inflation and it is after inflation. Inflation has to be a bit hard to measure. Bought a Big Mac lately? Looks like half the size it used to be. So if it held its price then it wouldn't show up as de facto costing twice as much.

 

Reason: Economy has already tanked although government numbers don't fully show it easily. Historically, the stock market tanks in October.

[amanda more]

 

 

Reason: The economy is tanking (causing stock market crash) do to these zombie ideas that will not be killed despite all the crashes and data to the contrary. From "Zombie Economics," The Great Moderation, The Efficient Markets Hypothesis, Dynamic Stochastic General Equilibrium, Trickle Down Economics, Privatization. Economists themselves are to blame for letting these ideas generate a life of their own.

 

 

 

 

Here is URL and has more extensive review plus page preview of zombie economics:

 

http://www.amazon.com/gp/product/0691145822/ref=as_li_ss_sm_fb_us_asin_tl?ie=UTF8&tag=eatingdollar-20&linkCode=shr&camp=213733&creative=399837&creativeASIN=0691145822&redirect=true&ref_=s9_simh_gw_p14_d3_g14_i1

 

 

 

 

 

[amanda more]

Found this very early 1 AM Tuesday Sept 20

"Standard and Poor's cut its unsolicited ratings on Italy by one notch to A/A-1 and kept its outlook on negative, a move that took markets by surprise, warning of a deteriorating growth outlook and damaging political uncertainty.

 

"It only adds to the contagion risk over Greece and has encouraged the flight to safety in markets here,"

 

Japan's Nikkei share average fell 1.4 percent, partly catching up with falls elsewhere on Monday when Tokyo markets were closed, while MSCI's broadest index of Asia Pacific shares outside Japan fell 1.3 percent.

 

The MSCI index is in bear market territory -- traditionally defined as a fall of 20 percent or more -- after sliding 22.3 percent from its 2011 high in April.

 

S&P 500 index futures fell 0.8 percent, pointing to a weaker start on Wall Street after U.S. stocks fell around 1 percent on Monday."

 

http://af.reuters.co...lBrandChannel=0

 

 

"Markets can remain irrational a lot longer than you and I can remain solvent." Keynes (attributed- not directly quoted)

Edited September 20, 2011 by amanda more

[Hal.]

Amanda ,

 

Should stock market participants be responsible for what happens to a company's losses just as they are responsible for it's profits ? Should they always operate in credit , making any losses covered by collateral ?

 

 

 

 

[imatfaal]

Hal - that would require overturning the notion of the limited company, which would have greater implications than the stock market. perhaps what is needed is merely an increased policing of the fiscal rectitude of the directors of limited companies and a lower tolerance for bad decision making. at present neither share holders nor directors are personally liable for losses beyond initial share capital (unless other assets are place as collateral) and the benchmark for a director behaving so badly that it is seen as a breach of fiduciary duties is very high - so few directors get hit in their own pocket. it can be argued that if we lowered the test (to closer to that of trustees' failure of fiduciary duty) then more bad behaviour would reflect back on the directors and less insane risks would be taken. to get corporate losses to be weighed against shareholders would lead to a massive reduction in available capital for industry, which no matter how noble the original ends would probably cause massive harm to what is an already well established system

[amanda more]

Check your 401k. Don't fall for it saying govt stated stuff that could still mean mortgages. Your plan could have the opportunity to buy CD's in it. These are government guaranteed. The trick is to not pay the penalty for removing from 401k and instead leave it there.

 

If your 401k does allow with like five day notice for parking your money in a CD fund then if you are going to do it, do it now before October. Otherwise you will lose principle as stocks tank. You can always then switch some back to stocks after the crash. A rule I recall is at age 30 30% in cash, at 80 80% in cash (CDs would be considered close to cash) The average person only has 75000 in retirement I recall so this is too little money to be gambling totally on stocks. At one point savings were negative so Americans couldn't have built up much of a nest egg elsewhere n the last few years even at 6% of income on savings now.

 

"401k

• A 401k is a retirement plan named after the section of the Internal Revenue Code authorizing it. These plans are typically employer created and sponsored. A 401k plan allows a wide range of investment options, although the investment options for any particular plan are governed by the administrator's investment selections. Most 401k plans allow for investments in mutual funds and some 401k funds authorize the investment in CDs. Like mutual funds, investments in 401k plans are not insured and can and do lose value."
   
  
  
   
  The IRA is much easier and can be switched to CD's easier. Bank CD's are government insured by FDIC.
   
  There has to be some honest funds which are mainly US treasuries which are primo but good luck finding the exact mix in the documents. In order to attract returns I think they get heavy in munis- anyone hot to invest in Detroit today?
   
  So -you don't need to pull from the plan and pay penalties- just switch much of your risk away from stocks and into CDs.
   
  
  
   
  It is your money- after all. Why is this strategy rarely mentioned? The people you see in the financial media are the salespeople.